What does net worth represent?

Net worth represents the difference between total assets and total liabilities, making this the correct choice. In financial terms, assets are everything of value that an individual or business owns, such as cash, real estate, and investments. On the other hand, liabilities are the obligations or debts owed to others, including loans, credit card debt, and mortgages.

Calculating net worth gives a clear picture of financial health; it reveals the residual wealth that remains after all liabilities are subtracted from assets. If assets exceed liabilities, the net worth is positive, indicating financial health and stability. Conversely, if liabilities exceed assets, the net worth is negative, suggesting financial challenges.

Understanding net worth is crucial for effective financial planning and career development, as it influences investment decisions, helps with budgeting, and provides insight into one's financial standing, both personally and in a business context.